S&P 500 Experiences Minor Pullback, Inflation in Focus
Market Recap for the Week of March 30, 2025
U.S. stocks started last week with minimal volatility. For the first half of the week, stocks moved sideways. Around midday on Wednesday, stocks began to decline, and losses accelerated on Friday, with the S&P 500 losing 2% on Friday alone. This puts the S&P 500 at a roughly 5% year-to-date loss. In the grand scheme of things, this is still just a minor pullback. The economic data released on Friday was likely the cause of the 2% decline. The Federal Reserve’s preferred measure of inflation, the PCE index, rose 0.3% for February. The Core PCE index, which excludes more volatile food and energy prices, increased by 0.4% for the month. This is likely why market participants are concerned. If inflation continues rising at this pace every month, the annual rate could reach 4.8%, much higher than the Federal Reserve’s target.
One concern is that tariffs might exacerbate the issue. However, it’s important not to place too much weight on a single month’s inflation reading, as these numbers can be volatile. Next month’s inflation reading could be significantly lower, balancing out February’s growth. The current year-over-year inflation rate, as measured by the PCE index, is just 2.5%, so overall, I wouldn’t be sounding any alarm bells about inflation just yet.
“While February’s inflation numbers caused a market dip, year-to-date trends show this is just a minor pullback—not a cause for alarm”
Chart of The Week
Our chart of the week comes from Apollo Chief Economist Torsten Sløk. It shows the historical performance of the S&P 500 after a 10% drop. There are three lines on the chart. The blue line represents the index’s average performance during a correction without a recession. As you can see, in these cases, the market tends to recover relatively quickly. The green line illustrates what happens when a recession does occur, and it’s no surprise that the market takes much longer to recover in these scenarios. The orange line represents our current path for 2025. The big question is whether we will enter a recession or not. If a recession occurs, it’s possible that U.S. stocks could drop even further. However, I want to remind readers of the difficulty in predicting recessions. In 2022, many economic indicators pointed to a recession, but it never happened. While we can’t know for sure if or when a recession will occur, we should have an idea of how certain investments might perform during one. If an investor is uncomfortable with how their portfolio may perform in a recession, changes to their asset allocation might be warranted.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Chart of the week Source: Bloomberg, Apollo Chief Economist
Note: Using periods with 10% correction and categorizing them if they were followed by a recession.
